Qualified Charitable Distributions from IRA for Canadian resident

[vancarver]

I searched for this topic but couldn't find anything. I apologize if I missed an entry, and thank you in advance. I am a Canadian citizen and resident who renounced his US citizenship ten years ago and is not required to file any US tax forms. My only remaining US asset is my IRA, which I am drawing down regularly, and reporting that as income in Canada. On Jan. 1 of this year Vanguard changed their US withholding from 15% (tax treaty) to 30%, saying the definition of "regular periodic withdrawals" was not clear. With a Canadian foreign tax credit, this means double taxation, which is unpleasant indeed. This is background for my specific question: I make charitable contributions every year of Canadian funds or appreciated taxable equities. Now that I am 70 1/2, and in order to soften the blow of that double taxation, I could make a Qualified Charitable Distribution from my IRA to a US charity. That amount would not be recognized as income by the US. I could then get a Canadian tax credit for that charitable contribution. (That contribution would never exceed 75% of my US income.) I read an article on the web by Andersen Global, saying that because the US doesn't consider the donated amount as income, I would not have to include it as Canadian income, either. Not only that, but they say that I could still take that donated amount as a charitable donation tax credit against my Canadian taxes, which sounds a little too good to be true. Any thoughts? Thank you.

[nelsona]

Just to be clear, although the withholding has increased, which is awful, you will get the money back when you file your tax returns.
first the 1040NR should be filed to determine the correct tax (IRAs are considered connected income, so you use the tax tables, not a flat rate).
Then all the US tax legitimately paid can be used on your CDn return (there is no 15% limit on pension income). So there is no more double taxation that there was when you were being withheld 15%, but it is a matter of cash flow, with IRS holding a load of your money for a year. The 15% withholding was a convenience. since it didn't reuire you to file a 1040NR. 30% withholding might be more of an incentive to do so.

To your question: Indeed, if the IRA distribution is not considered income in US, it is not in Canada either. You would be limited however in what you could claim as a donation in Canada, since with reduced taxable IRA income (which you say is your only US source of income) , the amount you could claim on your Cdn return may be less

Rough calculation you could only donate about 40% of your total IRA withdrawal.

Doesn't solve your cash flow. You would be giving over 50% of your IRA (to taxes and charity) rather than 30% in taxes.

[vancarver]

Thank you. Not quite as bleak as I'd imagined.